Czech Scripophily: A Story of Love, Beer and Broken Promises

Scripophily isn’t
the name of some rare disease, but rather a specialised branch of numismatics focused
on the study and collection of old stocks and bonds. The word is derived from
the English word "scrip" which represents an ownership right and the
Greek word "philos" which means to love. At AKRO, we have adorned the walls
of our offices not with photos or paintings but with old stock and bond
certificates. Such furnishings seem particularly fitting for a mutual fund
group whose activities are focused on such investments.

Over the years,
thousands of companies have at one time or another issued share and/or bond
certificates. It is therefore possible to focus on almost any theme to start a
collection. The railway and automotive industries are particular favourites
amongst Scripophilists. Thematic collections can include anything from
corporate scandals (Enron, Global Crossing,) to erotica (Nevada brothels,
Playboy Inc., Beate Uhse). I will confess that my collection at AKRO, and at
home, is rather eclectic in nature; a mixture of the decorative and the
historically interesting. It includes some lavishly illustrated foreign
certificates issued by Louis Bleriot, Claridges Hotels, The Port of Bruges, and
Societe Paris-France S.A. The majority of the collection is however focused on
old Czech certificates.

Czech Collectors: Spoilt for Choice

The Czech Republic
represents a fruitful source of old shares and bonds. In countries such as the
US and UK, old certificates are only normally available in companies that:

1.Went into bankruptcy (and the
owners just kept the certificates);

2.Whose shares, when cancelled
upon sale, were for whatever reason never destroyed by the transfer agents;

3.And shares where specimens (of
what was printed) and poofs (of what will be printed) have survived.

In the Czech
Republic, on the other hand, political change under communism meant most shareholders
just kept their shares in the their bottom draw in the hope that one day they
would have some value. As a consequence, at lot of certificates remain in
numerous Czech companies. Czech collectors are therefore spoilt for choice!

Left: Certificate from the
Compagnie Des Installations Maritimes De Bruges issued in 1904. The company was
formed in 1895 to construct the port installations and a canal at Bruges.
Widely acknowledged as one of the most beautiful certificates ever made.
Source: Scripophily.com - The Gift of History

Right: Paris-France S.A.,
issued 1927, and illustrated by Alfonse Mucha. Paris-France S.A. was
incorporated in 1898 to establish a shop in Paris to sell high quality clothing
and other items. Alfonse Mucha was retained to illustrate their certificates. Source:
gutowski.de

Top: Cheers! Smichov Brewery,
issued 1939. Featuring a large vignette of a seated King holding a beer. The
company was formed in 1869. Its products can still be enjoyed today. Source: Author’s
private collection.

Do these shares have any value?

To some extent, it
rather depends how you define value. Certainly many have considerable aesthetic
value whilst others may be regarded as of historic value. In some cases, old
stocks and bonds may even have some intrinsic value. Like most collectibles
overall scarcity and condition also play a part with regard to value.

Old certificates
can be purchased on general websites such as ebay or aukro. Specialist websites
and auctions also exist, e.g. hwph.com, fhw-online.de. International auction houses,
such as Spink and Bonhams, have also held Scripophily auctions. Interesting
certificates can be bought for a few hundred or a few thousand Euros. Rare
certificates can, however, fetch significantly more.

The Aesthetic Value

Old Certificates,
particularly those issued during the nineteenth and early twentieth century are
usually beautifully illustrated. Like banknotes, intricate engravings were used
to limit the scope for forgeries. Indeed, many of the same printers, engravers
and artists were used in the production of stock and bond certificates as for
banknotes and postage stamps. It was also felt that an elaborate illustration
was a sign of good things to come! An early form of corporate promotion.
Unfortunately, not all certificates have the artist’s name. Czech artists whose
work appears on certificates include: Alfonse Mucha, Josef Herčík, Emanuel Bohač, and Cyril
Bouda.

Left: Czechoslovak Commercial
Corporation of America, issued 1926. Illustrated by E. Bohac. The company aided
the emigration of Czechs to America. Note the symbolism of the Czech figures on
the right with their luggage, the rich and fertile land that awaits them, and
the Statue of Liberty that beckons. Source: Scripophily.com - The Gift of History

Historic Value

Through surviving
certificates it is possible to trace the evolution of our modern capital
markets from their origins in the seventeenth century to the present day. In
many cases, these certificates are the only tangible remains of enterprises,
great and small, successful or failed, and the colourful personalities often
associated with them.

Some of the most
sought after shares are those issued by The Dutch East India Company, which was
Holland’s biggest trading company during the 17th and 18th centuries. It was
also the world’s first joint-stock limited liability company with freely
transferable shares. The public share subscription ended on September 1st 1602.
It is a share in The Dutch East India Company, dated 1606, which is regarded as
the oldest known share in existence. The ultimate success of the Dutch East
India Company, and other similar companies shortly thereafter, secured the
limited liability company as the foundation stone of modern finance. Whilst
Czech certificates are not so old, many also have historical significance.

The availability
of historic bonds and shares tells us a lot about the relative historic
importance of industries to countries. Given the vast expanse of America, not
surprisingly, old railroad shares are very easily found in North American reflecting
the railway boom of the nineteenth and early twentieth centuries. In Africa,
Australia, Canada, mining shares predominate. What then of the Czech Republic?
Well, you guessed it, for Czech Scripophilists, by far the most represented
industry, measured by the availability of historic shares, is the brewing
industry! Not surprising given the historic importance of the beer industry to
the Czech Republic. Indeed, in 1931, tiny
Czechoslovakia was ranked 6th in the world in terms of beer production
being home to some 430 breweries.

The Czech market
isn’t just about collecting brewery shares. As one of Europe’s most advanced
economies almost every industry is represented, from automobiles (Skoda) to
banking (Zivnostenka banka). Furthermore, in the era before electronic
signatures, old stocks and bonds often bear the signatures of yesteryear’s
entrepreneurs. For autograph collectors, old certificates can be valuable
source of authentic signatures.

Anton Pupp, 1841-1907 Heinrich Pupp 1850-1931 Grand Hotel Pupp

The signatures of Anton and
Heinrich Pupp appear on share certificates, issued in 1898, to finance the
building of the Hotel Grand Pupp in Karlovy Vary (Carlsbad). Source:
Securityprinting.org, Pupp.cz

With the recent
popularity of ‘crowdfunding’, it is worth reflecting on the fact that the Czech
Republic has a rich and proud history of public subscription to projects deemed
of national significance, be it the National Theatre, the repair of St Vitas
Cathedral or Petrin Tower. The internet has merely given new life to an old
idea.

Left and centre: Public
subscription to finance of the View Tower on Petrin Hill, issued 1891, was an
example of successful Crowd funding. In March 1891 the building of the tower
started for the General Land Centennial Exhibition. It was finished in only four
months. The building of The National Theatre and the renovation of St. Vitus
Cathedral were financed in a similar way. Source: Securityprinting.org, Wikipedia

Right: City of Carlsbad
(Karlovy Vary) municipal loan, issued in dollars and linked to the gold price.
One of the pre-war bonds subject to a 1984 agreement. Source: Author’s private
collection

On a less
uplifting note, securities linked to the scandalous voucher privatisations of
the 1990’s act as a reminder of the endemic deceit and fraud that has so
undermined trust in the Czech capital market.

Intrinsic Value

Just because a
securityis old doesn’t mean it has
no intrinsic value. In a previous article, I noted the recent repayment of debt
by the UK government that originated from the South Sea Bubble of 1720! The
very oldest active bond is a perpetual bond issued by the Dutch Water Board of
Lekdijk Bovendams on May 15, 1648, to finance the repair of a dike. Now owned
by Yale University, the bond still pays interest.

On occasions, even
hitherto defaulted bonds can also turn out to have some intrinsic value left in
them. My first experience of this was in 1987, when the Chinese government
quietly paid-off the British holders of Chinese government bonds issued before
1949, when the communists came to power. The most prominent was a GBP25m
sterling bond issued in 1913, indexed to the price of gold, which was to mature
in 1960. The desire of the Chinese government to issue new bonds in the late
1980’s prompted the settlement. Traditionally, The London Stock Exchange has
refused to list securities issued by defaulters therefore providing an incentive
for a settlement.

Settlements in
eastern-Europe have included: Poland, Bulgaria and Romania. Many Czech pre-war dollar
denominated bonds were subject to a settlement in 1984/6. However, many of
these bonds would appear not to have received the payment indicated in the
agreement. The evidence suggests that the Czechoslovak government never fully
honoured the agreement.

What can we learn from Scripophily?

Old stock and bond
certificates often represent extremely decorative pieces of commercial art
illustrated by the leading contemporary artists of their day. However, old
stocks and bonds are also important because they represent tangible reminders
of our financial history. The successes, failures, booms, busts, entrepreneurs,
fraudsters, ongoing controversies, are all represented. Hopefully, by
reflecting on past experience, today’s investors can make better decisions. How
can investors commit to buying a long-dated Czech government bond without first
noting the ongoing treatment of bondholders subject to a bond-holders agreement
signed 30 years ago?

For more than 400
years, ever since the successful formation of the Dutch East India Company,
public subscription to joint stock companies has been the foundation stone of
modern corporate finance. On the whole, it has been a story of economic success
and progress. However, it is sobering to think that most old certificates
represent investments that, for one reason or another, are now worthless. The
reasons for their failure are manifold: politics, war, new technologies,
economic decline, incompetence, fraud or just plain bad luck. Investors who
blithely ignore these risks, and focus just on the present, ignoring history,
are worse investors because of it.

A surprisingly high number of bonds,
especially sovereign and municipal bonds, even after default, ultimately yield
at least a nominal return.For example,
since its formation in 1933 until its effective demise, the Foreign Bondholders
Protective Council brokered more than 50 settlements. The message is clear, never
ever, throw away a seemingly worthless certificate. In the future, it may well
have some artistic, historic or even intrinsic value. You never know your luck!

For investors and
collectors alike, Scripophily is indeed about more than just a pretty picture.

Jeremy Monk, MBA, ASIP, BSc(Hons), DIC

Investment Director, AKRO investiční společnost, a.s.

19th
April, 2016

I would like to a acknowledge the help of Vladimir
Gutowski (Gutowski.de), Jiří Jaroš (securityprinting.org), Bob Kerstein
(Scripophily.com - The Gift of History) and Jitka Markusová (Grandhotel Pupp)
for kindly letting me illustrate the article with photographs from their
websites.A special thanks to
Stanford University Libraries who provided me with copies of the 1984 and 1986
original signed agreements between the Foreign Bondholders Protective Council
and Czechoslovak state.

This article does not constitute investment advice or a
recommendation to buy or sell any security. The opinions expressed in this
article are the author’s and do not necessarily represent the views of AKRO
investiční společnost, a.s. Examples of the certificates illustrated in this
article are held in the author’s private collection including the pre-war Czech
dollar denominated bonds issued by the Czechoslovak State, Karlovy Vary
(Carlsbad) and City of Greater Prague.

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